This document contains a summary of all study materials of the course Nudge: influencing behavior. This course is part of the minor: Understanding and influencing decision making in business and society. This document summarizes all lectures, guest lectures, knowledge clips, and additional mandator...
Minor Understanding And Influencing Decisions In Business And Society
Nudge Influencing Behavior
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Nudge: Influencing behavior
Inhoudsopgave
Week 1 ........................................................................................................................................................... 2
Video 1: Richard Thaler - Nudge: improving decision about wealth, health & happiness ................................. 2
Lecture 1: Introduction ....................................................................................................................................... 3
........................................................................................................................................................................... 4
Video 2: The Dunning-Kruger Effect – Cognitive bias – Why incompetent people think they are competent.... 4
Video 3: The optimism bias ................................................................................................................................ 5
Lecture 2 – Intuition, overconfidence, and defaults ........................................................................................... 6
Week 2 ........................................................................................................................................................... 9
Video 4 – Language and temporal discounting .................................................................................................. 9
Lecture 3 – Intertemporal choice ....................................................................................................................... 9
Knowledge clip 1 – Intertemporal choice ......................................................................................................... 11
Lecture 4 - Guest lecture - The application of Behavioral Insights by the Dutch central government ............. 12
Week 3 ......................................................................................................................................................... 14
Video 5 – The battle between your present and future self ............................................................................. 14
Lecture 5 – Follow through plans and goal setting .......................................................................................... 14
Knowledge clip 2 – Health Nudges – Meta analysis ......................................................................................... 17
Video 6 – The consistency principle .................................................................................................................. 18
Lecture 6 – Guest lecture.................................................................................................................................. 19
Week 4 ......................................................................................................................................................... 20
Lecture 7 – Social influence 1 ........................................................................................................................... 20
Knowledge clip 3 – Persuasion principles 2 – Scarcity ...................................................................................... 22
Video 7 – Health nudges: Pierre Chadon .......................................................................................................... 23
Lecture 8 – persuasion principles 2 .................................................................................................................. 23
,Week 1
Video 1: Richard Thaler - Nudge: improving decision about wealth, health & happiness
Goals and objectives
- Apply the techniques of the psychology of decision making and behavioral economics
to improve decision without limited choices
- Offer a new approach to public policy that is neither left nor right
One approach policy: Libertarian Paternalism
Both terms are currently unpopular (at least in the US), and seemingly contradictory. But,
neither concept should be controversial:
Libertarian: protect the individual’s rights to choose
Paternalism: do what you can to improve the welfare of people
Goal: one-click paternalism
And it is possible to achieve these goals with better choice architecture
What is the alternative?
Choice architects must choose some set of institutional arrangements. What design should
planners pick? Example: Cafeteria menu planning – in what manner (order, salience) should
the food be presented?
- The plan that makes participants better off
- The options that make the participants worse off
- Random
- The options that make the director best off
Note that some choice must be made
Nudge = any feature in the environment that attracts our attention and alters our behavior
Principles of good choice architecture
Defaults: Padding the path of least resistance
o What happens when people do nothing?
o Computer settings/TV schedule
o Main lesson: defaults are risky
Expected error
o Paris Subway vs. Chicago parking, London pedestrians
Give feedback
o Give users information on how they are progressing toward their goal
o Pink Ceiling paint
o Ambient Orb (Clive Thompson, 2007): A ball that glows red when people are
using lots of energy, but green when their use is modest. In a period of weeks,
users of the Orb reduced their use of energy, in peak periods, by 40 percent.
- Understand mappings
- Structure complex choices
- Incentives
Recap: (Record, Evaluate and Compare Alternative Prices)
Electronic, downloadable information: Price formulas & Usage information
Applications: Credit Cards, Mortgages, Medicare Part D
,Lecture 1: Introduction
Nudge: To push against gently, especially in order to gain attention or give a signal
- Any aspect of the “choice architecture” that alters people’s behavior in a predictable
way without forbidding options or dramatically changing economic incentives.
- They are not mandates. Must be cheap and easy to avoid.
- Must be transparent
Nudging: Another way to change behavior
Traditional economics: Assumes humans are “optimal” decision making machines
- Reasoning capacity is infinite
- Incentives can solve all problems
- Markets are perfectly efficient
- Every act is entirely selfish
Two systems of thinking
System 1: Fast, Unconscious, Parallel, Associative, Low energy, ‘Doer’, Intuitive, fast,
reactionary.
System 2: Slow, Conscious, Serial, Analytic, Consumes a LOT of energy, ‘Planner’. Higher-
level reasoning, cognitive, slower, resource dependent
What system is used?
- If people only decided based on their reflective, rational System 2, we wouldn’t need
nudging because people would simply consider what is best (utility, preferences) in a
given moment
- However, humans often decide with their intuitive fast System 1
- Especially when we are: Rushed, Tired, not paying attention
Nudging principles
Liberalism
- The state should have respect for all citizens as free and equal human beings.
- The state should enable all citizens to develop and pursue their own conception of
the good life.
- Harm to others is only basis for legitimate government intervention
Paternalism
- Paternalism goes further than the minimalist ‘no harm’ principle of liberalism and
argues that people should also be protected against harming themselves.
- The state should promote the interests of all citizens in living secure, healthy,
wealthy, and happy lives.
- The state should interfere with people’s liberties if this generates desirable
outcomes.
Libertarian paternalism = nudging
Libertarian paternalism or ‘nudging’ aims to improve people’s choices by being both:
- Libertarian: it does not block people’s choices and thus respects people’s liberty.
- Paternalistic: it makes people better off and thus improves their well-being (health,
wealth, and happiness).
Principles of nudge
- Psychological ways of changing behavior
, - Focus on “guiding” behavior
- Instead of using incentives and information, use cues, frames, defaults.
- No force or prohibition! Preserve freedom of choice
- Minimal costs
- Change of choice architecture
Choice architecture
- A choice architect designs the choice environment to encourage the chooser to select
a preferred choice
- Maintain the chooser’s freedom to select other choices
- Make desirable choice available, and easier
- Make undesirable choice available, and harder
There is no such thing as a nudge-less choice: everything matters
When are nudges effective?
Behavioral economics: Assumes humans predictably deviate from ‘optimality’. For example:
- Heuristics: “shortcuts” that sometimes backfire
- Overreaction to losses: people detest losing
- Status quo: Stick to what we have (inertia)
- Social norms: other-regarding preferences, fairness concerns, herd mentality
- Impulsivity: we want rewards right now
- Optimism and overconfidence: help us maintain positive self-concept
Predictable problems
- Benefits now: costs later (should-want conflicts)
o Investment goods à doing too little
o Sinful goods à doing too much
- Difficulty of problem
- Frequency
- Feedback à only on the options we accept, not on the ones we reject
- Outcome of choice difficult to predict à Then nudging becomes effective
Know how humans behave
Humans:
Need the stimulus to be consistent with desired action (Stimulus response compatibility)
- GO signal in red, Stroop task
Use the default (opt-in versus opt-out)
Make errors (create forgiving systems)
Video 2: The Dunning-Kruger Effect – Cognitive bias – Why
incompetent people think they are competent
- The Dunning-Kruger effect: Believing you know something when
you don’t.
- Cognitive biases allow us to convince ourselves that something is
true even if the reality is different. Cognitive biases protect us from
reality they let us process information more quickly and help us make decisions more
quickly. They are a subjective social reality.
- The Dunning-Kruger effect is a way for everybody to feel above average internally
because most of us are completely average.
- People with little knowledge or skill think they are better than they are.
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